Inadequate exploration of oil and gas and Off Shore oil and gas potential of Pakistan -Off Shore Hydrocarbon Potential of Pakistan

 

 Inadequate exploration of oil and gas  and Off Shore oil and gas potential of Pakistan

THE upstream oil and gas exploration sector in Pakistan is significantly off the radar for oil majors. Oil majors are not playing any significant role in the country despite its impressive geology and prospectively. In fact, over the decades,   companies such as Exxon and BP selling off assets and pulling out of Pakistan.

Considering the nature of hydrocarbon exploration, and the mettle of oil and gas executives worldwide, the argument that companies are leaving Pakistan because of the security situation does not make sense, given that oil majors continue to operate in countries like Nigeria (Boko Haram), Iraq (ISIS), Mexico (drug cartels) and central Asian states.

If it were so, one also would not see oil majors making a beeline for frontier oil provinces such as Papua New Guinea and much smaller West African states. Frontier provinces, volatile security and political environments have not tended to deter oil and gas majors from pursuing hydrocarbon reservoirs and riches. However, the bitter truth is that despite amazing geology, Pakistan has pretty much failed to market its upstream sector and is seriously short of both oil and gas while seeking imported oil, natural gas and LNG to satisfy domestic demand.

Key reason for lack of adequate exploration is the fact that half of the natural gas production in Pakistan is undertaken by the two large public sector corporations, OGDCL (Oil & Gas Development Corporation Limited) and PPL (Pakistan Petroleum Limited). These two companies also hold the majority of the exploration leases. Unfortunately, neither OGDCL nor PPL has the project management and technology expertise to rapidly exploit and develop its leases. In this regard, the government should advertise the sale of 26 percent of PPL’s equity to an overseas company boasting the management expertise and technological know-how to explore and rapidly develop Pakistan’s tight and shale gas and oil resources. A strategic investor with 26 percent shareholding in, and management control over, PPL would have the incentive to rapidly increase PPL’s hydrocarbon production. PPL is a “compact” company originally owned by the multinational Burmah group of the United Kingdom, and for this reason it is easier to take over in a privatization move. If the divestment experience of PPL is successful, then the government should consider a similar strategic divestment of the larger public sector company, OGDCL,

Exploration Issues

Reasons for decrease in production of oil and gas

1.       Absence if large discoveries

2.       97BCF  average discoveries between 1992 to 2014

3.       Only 12 discoveries of larger than 1 TCF

4.       Crude average 3,4 MMBBL

5.       5 reservoirs of 10 MMBBL or more

6.       Higher finding and developing cost per barrel of oil , these have grown approximately 74% in 2010-14 against 2005-09 due to decline in average discovery size

7.       Concentration of exploration in Potwar and Lower / Middle Sindh. KP and Baluchistan are ignored due to security concerns

8.        inappropriate wellhead pricing structure of indigenous gas

9.       Law and order situation hampering the exploration activities

10.   Shortage of drilling rigs Causing low exploration and development possibilities  and prospect generation,  whereas lack of economies of scale make the international bidder non-competitive

11.   Non-development of dormant gas reserves  because of slow evaluation and appraisal process, litigation , low BTU gas of marginal reserves

12.   Lack of proper monitoring system to review the progress on blocks already awarded for exploration

13.   Highly volatile process if the international market

14.   Inefficient and obsolete refining operation and sub standard oil products

15.   Slow exploration activates in off-shore areas due to high cost , present  off shore density is one well per 1000 sq. km compared to world, average of 9.5 wells per 1000 sq km

Offshore hydrocarbon prospectively

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Sedimentary basins cover 827, 000km2 including both onshore and offshore, which to date remain under-explored, especially the offshore basins. According to Pakistan Basin Study of 2009, the country has six onshore and two offshore basins; offshore basins being the Indus basin and the Makran basin.  Almost the entire land mass and the offshore areas can possibly have high potential hydrocarbon plays, especially the Abyssal Fan system of the Indus offshore basin.

Abyssal or submarine fan systems constitute underwater structures having huge sedimentary deposition systems over geologic time and are a result of sediment transportation and deposition from continental shelf down on to continental slopes. They are also referred to as turbidity currents and their effects can be amplified through tectonic activity. Abyssal fans are the largest systems through which organic matter, rocks, minerals gets transported from land to sea and possess huge potential for hydrocarbon and gold exploration. Given this context, the Indus offshore basin, primarily a rift basin, is the second largest submarine fan system in the world after the Bay of Bengal and ought to contain various high probability hydrocarbon plays based on analogues. Tthe oil producing Mississippi fan (Gulf of Mexico), Amazon fan (offshore Brazil), Niger fan (offshore West Africa), Congo fan (offshore Angola) among others are prolific producers and analogous to offshore Pakistan being primarily Abyssal or Submarine fan systems, though much smaller in size.

The total recoverable reserves of natural gas as per brochure on Ministry of Petroleum website are given at 53.354TCF (trillion cubic feet), while remaining reserves are stated as 23.18TCF. The Economic Survey 2013-14 and Economic Survey 2014-15 state current gas reserves at 492bn cubic meters translating in to gas reserves of 17.3TCF (excluding shale).

As a contrast, the potential of submarine fan systems can be gauged from the fact that in place resource at the deepwater block in Bengal fan that contains the Dhirubhai discoveries initially stood at 25 TCF, essentially indicating that one find in the largest submarine fan in the world (Bengal) has a resource base greater than all remaining conventional gas reserves of Pakistan. This should get some bells ringing both at regulatory and commercial levels. The potential for hydrocarbon exploration and discoveries in the Indus offshore basin is huge, however, given the huge size of the basin itself, this will require intensive evaluation and commitment of capital. The 12 or so odd wells that have been drilled so far in Indus basin do not do justice to the hydrocarbon potential within this frontier basin. From a technical perspective, we should also be open to encountering high pressure, high temperature formations.

The Makran Offshore basin has a different geology than the Indus with both separated by the Murray ridge. Makran offshore is an oceanic and continental crust subduction zone with deepwater trenches and volcanic activity. The basin comprises oceanic crust and periodic emergence of temporary mud islands along the coast is strong evidence of huge hydrocarbon deposits. These temporary islands may imply improper sealing mechanisms but do ask for exploration laterally and of adjacent areas.

Makran basin is also a frontier basin with negligible exploration activity, though, a few wells have been drilled which encountered high pressure formations and a blowout in 1956. Analogs to Makran offshore include Cook Inlet, Alaska with a billion barrel oil equivalent reserve profile.

Hydrocarbon exploration has always been a high risk venture, however, given the geology that underlies offshore Pakistan, there is reason to believe in the prospectivity of the region. Based on analogous evidence, one can assume that offshore Pakistan is probably sitting on huge hydrocarbon deposits.

In view of the above discussion, and fiscal regime issues, it is imperative that Pakistani NOCs aggressively, and with an entrepreneurial spirit, start exploring for hydrocarbons in the Indus and Makran basins.

The National Oil Companies (NOCs) will have to take the lead and a strategic stake in offshore Pakistan, before any global oil major shows interest, given the particular business dynamics of the region and opening up of Iranian upstream sector to international market.

 LNG IMPORTS AND THE OIL and GAS POTENTAIL OF PAKISTAN

PAKISTAN has emerged on the international scene as a significant importer of liquefied natural gas (LNG). As of 2017, Pakistan was the sixth largest LNG market in Asia with imports of 4.6 million tonnes accounting for 1.6 per cent of global imports. Moreover, Pakistan added one out of five re-gasification terminals commissioned internationally by adding a floating storage re-gasification unit (FSRU) to its supply chain. The nation has opted for imported LNG to plug energy gaps despite being host to the second largest submarine basin in the world with potentially huge but undiscovered oil and gas reservoirs. It makes sense to gain some perspective on the LNG industry to enable optimised decision-making locally. The details of the off shore potential is discussed above .  Over the last couple of decades, three main markets for LNG have emerged: Asia Pacific, Europe and North America/Atlantic. Asia Pacific is the largest LNG market with Japan, China and South Korea among the largest importers. Proper commercial structuring, at both export and import stages, is extremely critical and underpins the success of any LNG project over the long term. To put things in perspective, approximate costs of Chevron`s Gorgon project and Inpex`s Ichthys project are $54 billion and $35bn, respectively. Over the years, three basic commercial structures have evolved in LNG trade with hybrids in between.These main structures are integrated, tolling and merchant structures and apply to both liquefaction and re-gasification facilities. As Pakistan has opted for LNG imports to meet energy shortages exacerbated due to a lack of timely action on our part, it would make sense to see what resource potential Pakistan has in a region that consti-tutes the largest LNG market in the world (73pc global share). Natural gas constitutes approximately 25pc of global primary energy demand and is growing as the world moves towards cleaner fuels. Moreover, Pakistan has the second largest submarine fan system in the world (Indus basin) with up to 10 kilometers of sediment accumulation. Such accumulations are recognized for huge offshore oil and gas reservoirs worldwide. Pakistan is also blessed with the Makran offshore basin, which is an oceanic and continental crust subduction zone with deep water trenches and volcanic activity. Therefore, we can assume with a high degree of probability that Pakistan potentially has huge offshore oil and gas deposits waiting to be discovered. We are also closer to main LNG markets than Qatar, which happens to be the largest LNG exporter in the world with 27pc market share.  Perhaps the LNG imports could be stop gap measures and in the breathing sace provided by these imports we put our house in order and attempt o dosciver oil and gas indicated in the off shore potential indicated above.  However, this is a long-term endeavour, potentially spread over the next 20 years or so, fraught with financial and commercial risks, requiring new thought paradigms and a changed risk perspective. But big oil and gas was never a business for the risk averse. A small first step towards realising this vision could be revisiting the fiscal and regulatory regime for the upstream exploration and production sector in view of changing energy markets.    NEW OIL AND GAS FINDS AROUND THE CORNER   ExxonMobil has indicated that it is close to hitting huge oil reserves near the Pak-Iran border, which could be even bigger than the Kuwaiti reserves. Addressing business leaders at the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), the minister said that ExxonMobil — an American multinational oil and gas company — has so far drilled up to 5,000 meters close to the Iranian border and is optimistic about the oil find.

1.      Offshore Drilling: Jan., 13, 2019: after a gap of nine years, offshore drilling to find estimated huge oil and gas deposits in ultra-deep waters at an estimated cost of over $100 million begins. The US firm ExxonMobil, in collaboration with Italian firm Eni Pakistan Limited, is drilling in ultra-deep waters some 280 kilometers away from Karachi coast.“Eni Pakistan has estimated nine trillion cubic feet gas deposits ExxonMobil expects oil deposits there.” They are drilling Kekra-1 well in Indus-G block, which is located some 280 kilometers away from the Karachi coast. Pakistan meets around 15-20% of its energy needs through local oil and gas exploration and production, while the rest is met through expensive imports. The oil and gas imports cost Pakistan around one-fourth of the total import bills per year. The country has emerged as one of the largest gas (liquefied natural gas) importers in the last couple of years at the world level. 

The Way Forward (2013-2023) Energy Plan For Pakistan

The Way Forward (2013-2023) Energy Plan For Pakistan (JR09)

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Executive Summary

The 2009 energy recovery plan and 2013 power policy objectives have partly been achieved. Capacity has been added. Imported and local coal capacity has been added or will be added in the next two years, thereby addressing the power mix issues to an extent. Losses numbers have gone down to about 18% and recoveries have increased to about 96%. The gap between supply and demand of gas has also been bridged, by end of the year 2017, by the commissioning of two LNG terminals and LNG import agreements   The first terminal Elengy Terminal Pakistan Limited is a 100% owned subsidiary of ENGRO, the company, which has been created to establish and operate a terminal for the handling, re-gasification, storage, treatment and processing of Liquefied Natural Gas (LNG) constructed in Port Qasim Karachi. In line with the approval, LNG Services Agreement   has been signed between SSGC and Elengy Terminal Pakistan Limited (ETPL), with capacity to re-gasify 600 mmCFD . The second terminal which also has the capacity to re-gasify 600 mmCFD per day has been commissioned by the Associated Group.  Annex 1 provides an assessment of the energy sector including a gap analysis.

 Both power and gas shortages have been addresses and in the next five years there will be need to move forward in both areas.  Failures include: regression on regulatory issues; indifferent power system planning; recoveries issues has not been completely solved, better numbers have been achieved by imposition of surcharges which has brought down the magnitude of cross subsidy. Industrial cross subsidy to domestic (high industrial tariffs have impacted upon export competitiveness) and inter DISCO cross subsidy has not been tackled .Progress on hydropower has been less than desired no major hydropower dam is currently under construction Dasu is also stalled, little work was possible on major water storage and power dams , although Neelum Jhelum and Tarbela extension are nearing completion and a number of high head medium/small output plants have been commissioned) . Dependence upon foreign fuels still persists adding to the growing balance of trade and reserves problems. Privatization and restructuring issues have received much attention, curtsey IMF Program (since concluded), but has seen little progress. Privatization of the four performing DISCOs is deemed to be crucial since the proceeds will write off the circular debt parked in the Power Holding Company. In recent moves GoP is considering bifurcating three DISCOs so as to make these more attractive to investors. Market reform and regulation issues also received little attention, in some ways regulatory affairs have received a setback. Moving towards a multi buyer market structure is seen as a must for the sector to perform.

Local gas and oil output has increased but the progress on exploration has been poor, insufficient progress has been made on: shale gas; tight gas; off shore exploration. Some of this could be explained by security conditions but these are  getting better and Majors drill in places with even worst security conditions .Mining of local coal ( except Thar where considerable and significant progress has been made) has not received much attention . Energy efficiency and conservation has received very little attention. Non commercial energy issues have received very little attention. Biomass and solar utilization in agriculture pumping received limited attention. 

There has been impressive progress but there is still work to do, areas where the short term efforts are to be focused to achieve medium and long term objectives are: Self Reliance – the energy mix has been altered but the share of foreign energy in total energy is still not addressed, there is need to encourage – hydropower, solar, wind, biogas, biomass to correct this energy mix in the medium and long term. Mapping of oil and gas resources and accelerated exploration of oil and gas would help, do to would be exploration for shale gas and off shore gas .; Indigenization of energy investments Pakistan still relies very heavily upon imported technology in the energy sector, there is need to put in place policies and procedures to encourage increase in local content in energy investments ; Governance – The liberalization of the power system and the oil and gas system is stalled and there is little progress in moving towards a  free market system, Government interference in day to day affairs has in fact increased , there is need to fix the financial dysfunction and put in place a transparent and independent regulatory system , after which the remaining entities in the power sector and oil and gas sector are to be privatized . Poor and non professional decision making along with misplaced priorities have resulted in circular debt. Improved and professional decision making will help in resolution of the financial dysfunction of the sector.

Objectives of the Strategic Plan

The strategic directions for developing energy sector include:

1.                     Optimize the utilization of country’s indigenous resource base especially hydropower to reduce the dependence on imported fuel through an institutionalized strategy. Thar coal utilization is in hand, coal other than Thar needs attention. Conversion of Tube wells to biomass, biogas and solar needs to be pursued as means of avoiding imported fuels. Wind and Solar would also contribute in imported fuel substitution. Accelerated exploration for gas and oil including tapping shale gas and off shore hydrocarbon resources also need attention.

2.                     The assurance of supply of energy at optimum and competitive price to all sectors of economy. Efficiency and energy conversation needs special attention. Cross subsidies need to be removed; Industry needs to be provided energy including power at cost recovery based tariffs.

3.                     Indigenization of energy investments including provision of employment to local people by means of   enhanced exploration of indigenous resources within the country and putting in place incentives for local manufacture or assembly of energy equipment and systems . Encouragement to local contractors and consultants needs to be made a part of the national energy policy.

4.                     Creation of a conducive and healthy environment for the participation of private sector in energy sector development under the supervision of effective, independent and transparent regulatory authorities.